I’ve been hunting through the market for possible bargains. I’ve found two FTSE 100 shares I’d consider buying for my top-rated Stocks and Shares ISA ahead of the 5 April deadline.
A British manufacturing powerhouse
Melrose Industries (LSE: MRO) made headlines in 2018 when it bought venerable British automotive and aerospace group GKN. Melrose’s business model is based on buying underperforming industrial groups, improving them, and then selling them on.
Since taking control of GKN, Melrose has eliminated the deficit on the group’s pension schemes and repaid £3.4bn of debt used to fund the acquisition. Operationally, profit margins in the aerospace business have risen by 4% and inventory levels have fallen, freeing up cash.
However, sales slowed in the automotive business last year, due to the global chip shortage. GKN makes parts for car manufacturers, who were cutting their orders to GKN because they couldn’t produce as many cars as planned.
There are obviously still some risks here. Problems with new vehicle supply seem likely to stretch well into 2022. If the war in Ukraine leads to a wider economic slowdown, new orders could also fall.
A FTSE 100 share with growth potential
However, the latest update from Melrose suggests market conditions may already be improving. Sales during the final quarter of last year were said to be “almost back to levels” seen during the first half of 2021.
Looking further ahead, Melrose says that GKN won £5bn of new automotive business in 2021. More than one third of this relates to electric vehicles. This suggests to me that GKN is increasing its share of this fast-growing market.
Broker forecasts price Melrose shares on 15 times 2022 earnings, falling to just 10 times earnings in 2023. There’s also a useful 2.3% dividend yield. I’d be happy to buy the shares as a long-term investment at this level, as I think they’re likely to perform well over time.
A recovery opportunity?
The second FTSE 100 share on my list is DIY investment platform Hargreaves Lansdown (LSE: HL). Hargreaves benefited from the lockdown trading boom, but profits fell last year as market conditions turned calmer.
As the market leader in the UK, Hargreaves is very profitable, but faces growing competition. In an effort to protect its profits and generate new routes to growth, the company recently launched a plan to upgrade its technology and provide new forms of insight and advice for clients. Hargreaves also plans to add 19 new funds to its investment product range by 2024.
These changes seem logical to me. The big risk is that this plan will require Hargreaves to spend an extra £175m over the next five years. So we won’t know whether these investments will be successful for several more years. If they’re not, Hargreaves could end up bloated and less profitable than it is today.
Hargreaves’ share price has fallen by more than 30% over the last year. In my view, this slump has probably gone far enough. This financial business is still one of the most profitable on the UK market and Hargreaves stock now offers a useful 4% dividend yield.
I’m looking at this FTSE 100 share as a potential buy for my ISA portfolio.
